SOUTHERN CROSS ELECTRICAL ENGINEERING LTD — Annual Report 2016

Sep 27, 2016

Full Year Results Roadshow

28 September 2016

About SCEE

Leading provider of specialised electrical, instrumentation and communications services

Delivery across Australia and overseas

Strong reputation for safety and excellence

Established in 1978 and listed on the Australian Securities Exchange in 2007 under the code SXE

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Highlights

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• ‐ results presented on an underlying trading basis. A reconciliation to statutory results can be found on slide 17

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Full year financial performance

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Activity in H1 high from construction projects at CITIC Pacific Sino Iron, Samsung Roy Hill and Tecnicas Reunidas TAN Burrup

These projects successfully completed and closed out in H2

Gross margins for the year were 16.1% compared to underlying trading gross margins of 14.8% in FY15

Underlying trading overheads for FY16 were $21.4m, down $0.9m against underlying trading overheads in FY15

Underlying trading NPAT for the year was $5.4m which represents a 29% increase on FY15 underlying trading NPAT of $4.2m

• ‐ results presented on an underlying trading basis. A reconciliation to statutory results can be found on slide 17

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Balance sheet

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Strong balance sheet throughout the year

Cash of $41.8m and debt free at 30 June

Acquisition resulted in recognition of additional goodwill of $12.3m and $8.7m non‐ current liability as assessment for payment of deferred consideration

$2.5m of net tangible assets acquired and included in 30 June balance sheet.

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Cashflow

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Capex low and expected to remain so for foreseeable future

Absorbed cash outflows of $6.6m to complete the Datatel acquisition

Declared fully franked final dividend of 1.35cps to be paid 13 October and interim dividend of 1.35cps paid 14 April

Maintaining balance between returns to shareholders and retaining capital for growth opportunities

Franking account balance of $18.5m at 30 June

• ‐ results presented on an underlying trading basis. A reconciliation to statutory results can be found on slide 17

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Health, safety and people

Performed our operations in the period without a lost time injury

Twelve years LTI free in Australia

Group employee numbers over 600 at year end

Strong commitment to apprenticeship program and indigenous participation

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Employees

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Order book

Order book at 30 June of $24m with a further $27m won in July and August

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Order book

Over last three years our revenue mix has switched from overwhelmingly coming from lump sum greenfield construction contracts to increasingly we work under reimbursable or panel or framework style agreements

A feature of these agreements is that typically they are initially awarded at nil value and then at any one time we only have firm work orders for a very short period ahead

However for all these agreements we have confidence in the underlying flow of work and that orders will be constantly refreshed

We also continue to target lump sum construction projects

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Diversified framework agreements

SCEE has a breadth and depth of such reimbursable, panel and framework style agreements

Diversified across significant sectors of the economy including mining, oil & gas, industrial, utilities, social infrastructure and telecommunications

Many of the agreements provide exposure to the longer term maintenance and operations phases

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Locations

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Tecnicas Reunidas TAN Burrup
Rio Tinto Electrical Infrastructure Replacement Whittens Dugald River
Bechtel Australia
CITIC Pacific Sino Iron Pacific LNG
Rio Tinto Services Curragh ROM Upgrade
Bechtel GLNG
Samsung Roy Hill
Bechtel Wheatstone LNG
NBN
Queensland Coal Seam Gas
BHP Billiton Iron Ore Sustaining Capital
Karara Mining
Power Line
Western Power
Major Works Panel Minor Services Works
NBN
Newmont Boddington Services
NBN
NBN
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Strategy

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Resources

We will leverage our client relationships to transition to a sustainable resources business via exposure to sustaining capital and maintenance markets:

• Regional facilities opened to more closely service clients

• Widening our services offerings – to include small‐scale civils, mechanical, communications and specialist services

SCEE has a breadth and depth of exposure in the resources market with continuing activities and recent awards in the iron ore, gold and oil & gas sectors

Also evaluating and tendering a number of overseas opportunities in the Middle East, East Africa and South America

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Utilities, industrial and infrastructure

Completed projects for industrial clients including SIMS Metal and at TAN Burrup

SCEE Infrastructure’s overhead powerline business continuing to work for mining clients in the Pilbara

Now also executing transmission overhead line works under Western Power’s Major Works Panel

Received first transport infrastructure award for $2m of electrical works on a Western Australian freeway project

Actively tendering work in all of the above sectors as well as in defence, renewables and water

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Telecommunications

Telecommunications identified as an expansion sector with growth driven by consumer demand and technological innovation

Combining Datatel’s relationships, systems and experience with SCEE’s skills in project management, mobilisation, remote working and balance sheet provides a scalable platform to enter the sector and establish the business in other states

Commencement of NBN works in Victoria and Tasmania since the acquisition validates this vision

Client‐led expansion into QLD and SA is also being pursued

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Commercial, education and health

Datatel’s commercial team of more than 40 electricians, technicians and apprentices provides SCEE a presence in sectors where it has not historically operated

Datatel has a significant client base in the education and health sectors in both metropolitan and regional areas of WA

Major clients include Curtin University, Department of Education, Baptistcare, St John of God and local government

Further investment from SCEE will enable growth, in particular the ability to undertake larger scale opportunities

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Cost control and efficiency

In a cost focussed market a strong emphasis on ensuring an efficient operating structure

Significant restructuring exercise performed in late FY15

Further cost saving initiatives executed in FY16 and to be implemented in FY17

Service Centre opened offshore in February 2016 to provide more cost efficient support. Now have nearly 30 staff in the Philippines

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Conclusion

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Non‐IFRS financial information

SCEE’s results are reported under International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. The Company discloses certain non‐IFRS measures that are not prepared in accordance with IFRS and therefore considered non‐IFRS financial measures. The non‐IFRS measure should only be considered in addition to, and not as a substitute for, other measures of financial performance prepared in accordance with IFRS.

EBIT and EBITDA are a non‐IFRS earnings measure which do not have any standard meaning prescribed by IFRS and therefore may not be comparable to EBIT and EBITDA presented by other companies. EBIT represents earnings before interest and income tax. EBITDA represents earnings before interest, income tax, depreciation and amortisation. A reconciliation of profit before tax to EBIT and EBITDA is presented in the table on the left below.

The term “underlying trading” used in this document is a non‐IFRS measure which refers to the statutory results excluding one‐off items disclosed in the reconciliation presented below. This measure was used by management to assess the Company’s performance. The underlying trading results are unaudited.

FY 16 underlying profit reconciliation: Statutory Acquisition costs Underlying trading (unaudited) $m $m $m Contract revenue 207.6 207.6 Contract expenses (174.2) (174.2) Gross profit 33.4 33.4 Other (expense)/income 0.2 0.2 Overheads (21.8) 0.4 (21.4) EBITDA 11.8 0.4 12.2 Depreciation expense (4.8) (4.8) Amortisation 0.0 0.0 EBIT 7.0 0.4 7.4 Net finance expense 0.2 0.2 Profit before tax 7.2 7.2 Income tax expense (2.1) (0.1) (2.2) Profit from continuing operations 5.1 0.3 5.4	FY 15 underlying profit reconciliation: Statutory Organisation restructuring Asset write‐ downs and lease provisions Claim write‐ downs Impairment of goodwill Underlying trading (unaudited) $m $m $m $m $m $m Contract revenue 238.3 2.3 240.6 Contract expenses (205.3) 0.3 (205.0) Gross profit 33.0 0.3 2.3 35.6 Other (expense)/income (1.0) 1.3 0.3 Overheads (23.4) 1.1 (22.3) EBITDA 8.6 1.1 1.6 2.3 13.6 Depreciation expense (6.8) (6.8) Amortisation (0.1) (0.1) Restructuring and impairment (11.0) 1.2 1.4 8.4 0.0 EBIT (9.3) 2.3 3.0 2.3 8.4 6.7 Net finance expense (0.1) (0.1) (Loss)/profit before tax (9.4) 6.6 Income tax expense (0.4) (0.7) (0.6) (0.7) (2.4) (Loss)/profit from continuing operations (9.8) 1.6 2.4 1.6 8.4 4.2	FY 15 underlying profit reconciliation: Statutory Organisation restructuring Asset write‐ downs and lease provisions Claim write‐ downs Impairment of goodwill Underlying trading (unaudited) $m $m $m $m $m $m Contract revenue 238.3 2.3 240.6 Contract expenses (205.3) 0.3 (205.0) Gross profit 33.0 0.3 2.3 35.6 Other (expense)/income (1.0) 1.3 0.3 Overheads (23.4) 1.1 (22.3) EBITDA 8.6 1.1 1.6 2.3 13.6 Depreciation expense (6.8) (6.8) Amortisation (0.1) (0.1) Restructuring and impairment (11.0) 1.2 1.4 8.4 0.0 EBIT (9.3) 2.3 3.0 2.3 8.4 6.7 Net finance expense (0.1) (0.1) (Loss)/profit before tax (9.4) 6.6 Income tax expense (0.4) (0.7) (0.6) (0.7) (2.4) (Loss)/profit from continuing operations (9.8) 1.6 2.4 1.6 8.4 4.2
		33.0 0.3 2.3 35.6 (1.0) 1.3 0.3 (23.4) 1.1 (22.3)
		8.6 1.1 1.6 2.3 13.6 (6.8) (6.8) (0.1) (0.1) (11.0) 1.2 1.4 8.4 0.0
		(9.3) 2.3 3.0 2.3 8.4 6.7 (0.1) (0.1)
		(9.4) 6.6 (0.4) (0.7) (0.6) (0.7) (2.4)
		(9.8) 1.6 2.4 1.6 8.4 4.2

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Disclaimer

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